OilVoice - Overseas Investment Rising In Ecuador's Oil Sector

Overseas Investment Rising In Ecuador's Oil Sector

Monday, March 01, 2010

Overseas oil firms operating in Ecuador have agreed to more than double their investment in the South American nation this year, according to the country's energy ministry. While a marked upturn in spending by the main private and foreign state-controlled producers should combine to help Ecuador keep oil production stable in 2010 after successive years of decline, a return to production growth is thought to be rather unlikely under the current prohibitive regulatory environment.

Investment plans presented to the national government by the four leading foreign oil firms operating in Ecuador see a combined annual capital expenditure (capex) of $417.7 million this year, rising from $212 million invested by the whole private oil sector in 2009. The four firms included in the figures are Spanish-Argentine major Repsol YPF, Italy's Eni, Colombian oil services company Ismocol and a joint venture between Chinese national oil heavy-weights China National Petroleum Corporation (CNPC) and Sinopec, which operates four projects in the country.

However, other state-backed firms have failed to attend the party. One of the most notable absences is that of Brazilian major Petrobras.

According to energy ministry sources, Petrobras is yet to submit its investment plan to the government. The Brazilian firm was formerly one of the largest foreign investors in Ecuador, however, the firm has been gradually winding down its operations in the nation over the last few years in response to the resource nationalist policies of President Rafael Correa. Petrobras' net Ecuadorian oil output has fallen to just 3,000 barrels per day (bpd), and it appears that Petrobras is aiming to curtail its spending in the country to the bare minimum required to keep the wells running. Given President Correa's well documented tough stance towards non-investing foreign oil firms, expropriation is a real threat.

While the rise in capex commitments will be touted by Correa as evidence of the success of his hard-ball policies, the short-list of major investors demonstrates the extent of the exodus from the Ecuadorian oil sector. Out of the six foreign-backed operating firms that have submitted their budgets, three are Chinese-owned. With the exception of Repsol, investment from Western companies in the country continues to fall south.

Higher spending from CNPC-Sinopec and Repsol should help to ease the decline of output from privately-operated Ecuadorian fields, which fell by 15% in 2009.